BE innovative and reap the rewards! Gordon Brown is encouraging businesses to help build an economy of high aspirations and achievement by investing in new technology.

An extra deduction for small businesses investing in R&D will increase from 50% to 75%. For large companies the increase will be from 25% to 30% from April next year.

With an extra #100m of funding for R&D tax incentives, now's the time to check if what you're doing is qualifying. Missing out on this valuable relief could now be far more costly. R&D tax incentives were introduced in 2000 for small- and medium-sized companies. This was extended to large companies in 2002 albeit at a lower rate of 25%.

The cashback incentive under the small- and medium-sized companies relief has provided many businesses with a much needed cash boost in the early stages of development.

Whilst the cash benefit of 24p in the pound will broadly remain the same, the extension of the small- and medium-sized company definition should extend the relief to more companies. Those with fewer than 500 employees and either a turnover of not more than #100m or balance sheet total of not more than #86m will be the winners.

Companies should also make sure that they don't lose the benefit for prior periods. With the effect of the shortening of deadlines for R&D claims confirmed in last year's Budget, the March 31, 2008 deadline is a date for the diary.

Those companies that haven't yet claimed their relief for periods before March 31 last year will lose the benefit for those years after that date. Eligible costs for the enhanced relief are, broadly, salary costs, consumables including power, water and fuel, computer software and externally provided workers.

In addition to R&D tax relief, small- and medium-sized enterprises will also be able to benefit from changes in the capital allowances regime.

A new 100% annual investment allowance for the first #50,000 of expenditure on plant and machinery will be available from April next year. This will, essentially, replace the existing first-year allowances of 50% for small companies and 40% for medium-sized companies. It shouldn't be forgotten that all companies can claim 100% allowances for costs incurred on R&D assets. Of course, as a numbers man the Chancellor can add and subtract. So what's he taking away? Tax relief for industrial buildings will be phased out and allowances for fixtures and fittings reduced.

The corporation tax rate for companies with taxable profits below #300,000 will increase from 19% to 22% by 2009.

Those with taxable profits above this will suffer tax at the full current rate of 30% and 28% from April 2008.

To further whet our appetites for innovation a #100m competition has been announced to challenge universities and businesses to come together and convert scientific and technological breakthroughs into commercial successes. If you want to be a millionaire think blue skies.